Rethinking financial instruments: The case study of floods in Nepal

Index-based insurance is often discussed in the literature as one of the innovative financial instruments for micro-insurance. Ongoing research has shown that concerns remain about the demand for index insurance in low and middle-income countries. In Nepal, recent literature has demonstrated that the demand for crops is low, that index-based insurance products for specic crops should be piloted and that farmers' willingness to participate should be assessed. This thesis explores the factors that affect smallholder farmers' demand for hypothetical index-based flood insurance (IBFI) for crops in Nepal. The study employs a mixed-methods approach including an index-based insurance game and brings empirical quantitative and qualitative evidence from flood exposed areas in the lowlands of the Karnali River basin. Three common factors were identied and are most likely to infuence farmers' decisions for potential IBFI; i) the basis risk ii) education and iii) recent weather conditions. However, non-common factors identified by the qualitative approach indicated that practical implementations (such as distance to insurance provider) should also be taken into consideration when piloting future activities for potential index-based insurance products to minimise the risks and increase participation. Employing a mixed-methods approach was proved to be valuable to expand the research around application of IBFI but also to provide a foundation for potential policy and practical implementation.